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Can U.S. Cellular (USM) Spring a Surprise in Q3 Earnings?

United States Cellular Corp.USM, the wireless subsidiary of Telephone & Data Systems Inc. TDS, is slated to report third-quarter 2017 results on Nov 8, before the opening bell.

The company’s earnings lagged the Zacks Consensus Estimate in two of the last four quarters, the average negative surprise being 137.35%.

Let’s see how things are shaping up for this announcement.

Factors at Play

The price performance of U.S. Cellular fails to impress. Over the past three months, shares of U.S. Cellular have lost 12.7% compared with the industry’s decline of 9.5%.

U.S. Cellular continues to face a number of headwinds. It operates in a highly competitive wireless market and is significantly challenged by low-cost mobile service providers. Additionally, high costs associated with network integration and construction of cell sites, aggressive pricing by larger rivals and the ongoing consolidation in the wireless industry through mergers, acquisitions and joint ventures are risks to third-quarter results. The company’s cash and liquidity scenario in the last quarter was also dismal. It is to be seen whether the company can turn this situation around in the to-be-reported quarter.

Nevertheless, U.S. Cellular’s top priority has always been subscriber addition and churn management. Toward this end, the company has taken up different judicious business measures such as introduction of a billing system, continuous rollout of 4G LTE, enhancement of LTE handsets, completion of various spectrum transactions and monetization of non-strategic assets. Moreover, Shared Connect plans which offer more data, larger allotments and unlimited offerings bode well. The company’s decision to upgrade its existing prepaid plans by increasing the amount of data available should help drive prepaid subscriber addition. In the last reported quarter, prepaid subscriber base totaled 484,000, flat year over year.

Meanwhile, U.S. Cellular is optimistic about its collaboration with Nokia Corporation NOK to provide enhanced Internet of Things (IoT) services, followed by the growing demand for smartphones. The company is also focused on various cost-cutting initiatives.

Earnings Whispers

Our proven model does not conclusively show that U.S. Cellular is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below.

Zacks ESP: U.S. Cellular has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 1 cent. You can uncover the best stocks to buy or sell before they’re reported with our https://www.zacks.com/premium/esp-buy?adid=zp_article_espfil...">Earnings ESP Filter.

Zacks Rank: U.S. Cellular has a Zacks Rank #3 which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

The company’s earnings surpassed the Zacks Consensus Estimate in all of the previous four quarters, resulting in an average beat of 14.02%.

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